Germany Launches EUR 50 Billion Funding Program for Decarbonization of Heavy Industry
Germany has launched a massive EUR 50 billion funding program to support energy-intensive industries such as steel, chemical, and cement to become climate-neutral. The program offers considerable financial support for companies that would like to invest in innovative and climate-friendly technologies.
The deadline of August 7 is approaching for the first preliminary auction portion of the German Ministry for Economic Affairs' (the "BMWK") massive EUR 50 billion funding program to support energy-intensive industries such as steel, chemical, and cement to become climate-neutral. The program offers considerable financial support for companies that would like to invest in innovative and climate-friendly technologies.
In order to make green technologies more attractive, the German government relies on the Carbon Contracts for Difference ("CCfD") concept. These hedging contracts compensate companies for the additional costs they incur through the construction (CAPEX) and the operation (OPEX) of more climate-friendly plants (or retrofitting of existing plants). One example for such climate-friendly alternatives is the use of green hydrogen. The CCfD approach has the advantage of investment risks being cushioned, but without placing an excessive burden on taxpayers. If climate-friendly production becomes cheaper than conventional production, the payment will be reversed: The subsidized companies must then repay the subsidies.
The award procedure follows an auction model. Companies wishing to participate must demonstrate the amount of government funding they require per avoided ton of CO2. The Government's objective is to incentivize only those companies that convert their production in a particularly efficient way by awarding a climate protection contract. Selected companies receive a variable subsidy in the amount of the excess costs incurred by employing the climate-friendly technology over the conventional technology.
The August 7, 2023, deadline requires companies to provide preliminary information about their planned project in order to participate in the first auction cycle. Compliance with this deadline is a prerequisite for participation in the following bidding procedure, for which companies must submit application documents including a competitive bid. This is expected to take place at the end of 2023. The climate protection contract becomes binding by the award. The German government plans for this auction cycle to occur twice a year starting in 2024.
Further details, such as the eligible industrial activities and technologies, are specified in detailed funding guidelines (Förderrichtlinien). There is still some uncertainty regarding the detailed conditions of the subsidies, not only because the program is conceptionally new, but also because the conditions are subject to compliance with EU state aid law.